The real estate blog.

A wide sweeping dragnet focused on mortgage fraud has reeled in hundreds of suspects across the country. Headlining this show of force were two former hedge fund managers at Bear Stearns, the fabled New York investment company that nearly went bankrupt a few months ago. Something like this had to happen. Too many companies and households are going broke for someone not to go to jail. Somehow, I think many of the wrong people are being blamed. Why isn’t Angelo Mozilo being frog-marched like Ralph Cioffi and Matthew Tannin the hedge fund managers from Bear? Why isn’t Chris Dodd being impeached for trying to pass legislation disguised as a homeowner bailout when the laws are really a bailout for his friends at Countrywide?

I’ve said for some time the fraud in real estate over the past
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The government’s role in the housing crisis is beginning to take some twists I’m not sure anybody saw coming and that it probably shouldn’t be forced to accept.

A few different issues are beginning to brew that will force FHA and HUD to either make a stand or roll over.

First is the role as a bailout for failed sub prime mortgages. The FHA Secure program has become a stop-gap for borrowers facing foreclosure through rate adjustments but are still making their payments on time. Though touted as a success, some analysis of the numbers show that all FHA originated loans were called FHA Secure, thus lowering the impact of the program. The consensus is the program has failed to live up to expectations.

Secondly, loan limits for FHA have been proposed to be extended
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I had the opportunity to be interviewed a few weeks ago for the monthly magazine of the Salt Lake Board of Realtors June edition. Ironically, my role was as a counterpoint to optimistic economist Jeff Thredgold who often is quoted in the media for Zions Bank.

The point of the story was to emphasize that Salt Lake is still a good real estate market and is likely not to see the downturn being experienced in the bubblicious parts of the country. In an unlikely turn, I was selected to be the housing bear.

But the good economic news does not mean Utah
won’t escape the effects of a national housing downturn,
according to Nigel Swaby, a Salt Lake mortgage broker.
Swaby believes the worst is yet to come when it comes to
falling home sales and foreclosures.
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I see searches in my site logs asking if subprime loans are still available. About a year ago, I wrote they were and that was true up until very recently. However the stated income and 100% financing loans went away in August 2007. Today I received news my biggest remaining subprime lender is exiting that business as well.

This lender is a major company that has consistently been conservative in its policies and didn’t expect much fallout in their business. When the other major lenders dropped subprime in the last year, this lender kept the program, though it was quite limited. Today I received the following:

NON-PRIME PROGRAM will be eliminated…this includes bank statement loans and any score below a 650.

Tightening for prime programs was announced as well -
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Evander Holyfield is getting hit again, this time in the pocketbook. The former Heavyweight champ is broke and his $10 million mansion is slated to go to sale July 1.

A legal notice that appeared in a local newspaper shows his Fayette County estate is under foreclosure. The 104-room, 54,000-square-foot home worth an estimated $10 million is set to be auctioned by a bank on July 1.

And it’s not just the mortgage for Holyfield. One of his baby’s mamas is filing contempt charges for failing to pay $6,000 in child support. The 45 year old former champ hasn’t fought since last October and is trying to secure another shot at the title.

In boxing terms, Holyfield is to sports as Ed McMahon is to Hollywood. Both are far past their prime and financially shouldn’t be exposed to these kind of monthly expenses.
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That could be an alternate title to the news story claiming Homes in foreclosure top 1 million, but it probably wouldn’t gain that much attention. As they say in the media, “if it bleeds, it leads.”

The news on Wall Street today was wildly positive. Stocks closed up sharply, unemployment was down for the week and even retail sales were up last month. The American consumer is alive and well.

I’m not trying to downplay the foreclosure situation, because the numbers are truly staggering. If we take into account the fraud and speculation over the past few years, many of the homes being “lost” were never occupied to begin with. Consider some of the fraud stories covered here: Casey Serin had 8 empty houses lost to foreclosure; Zareh Tahmassebian several dozen; Brad Kitchen also had dozens. Workouts for those loans were simply not possible.
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Another reminder about excessive spending came out in the news today. Ed McMahon, former sidekick to Johnny Carson and presenter of giant sweepstakes checks is about to lose his home to foreclosure.

According to news reports, McMahon is behind on his mortgage in excess of $600,000.

ReconTrust, a unit of mortgage lender Countrywide Financial, on Feb. 28 filed a notice of default on a $4.8 million Countrywide loan backed by Mr. McMahon’s home. The notice was filed with the Los Angeles County Recorder’s Office but hasn’t previously come to light. According to the filing, Mr. McMahon was then about $644,000 in arrears on the loan.

The home is currently listed for sale at $5.75 million. It’s been on the market for two years. McMahon joins the list of celebrities who have lost their homes or come close to it like Whitney Houston, Jose Canseco and Michael Jackson.
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What goes up, must come down. It’s a cliche we’ve heard for some time about the housing market, with Utah finally beginning the coming down process. What about things that were supposed to go up, but never did? How about things that came down when nothing will replace them? Welcome to the ugly side of the downturn.

The City Weekly had a pretty in depth cover story a couple weeks ago about the ugly side of development including infrastructure requirements for our continuing residential growth. It reminded me that during the booms, developers will do just about anything to get a project built, but if market conditions change, they back out and leave everybody holding the bag.

Kennecott Land is literally the biggest example of this. Their Oquirrh Mountain project would have
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They aren’t actually happening much either. One of the posts in yesterday’s Carnival of Real Estate pointed out that in high foreclosure area Sacramento, less than 5% of sales are successful short sales.

Two key reasons are behind that number. First of all, lenders are simply overwhelmed. Secondly, and this is the most important, lenders are letting homes be foreclosed to collect on the mortgage insurance that pays 20% of the loan amount. This provides income and cash flow to the lenders.

I’m witnessing this play out in real life with my clients purchasing distressed homes in California and Florida. Now lenders are much more responsive to bank owned properties or REOs and the Sacramento numbers bear that out. Over 60% of sales in Sacramento are bank owned. This trend bears out in what I’m observing in Las Vegas and Phoenix.
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Welcome to the 92nd Carnival of Real Estate. I was asked to host on short notice and given this was a holiday weekend known for kicking off the summer driving season, I thought the theme should revolve around efficiency in real estate blog posts.

With gas at all time highs and with no sign of dropping, efficiency is going to become important for all of us.

Given the theme, I thought I would assign a vehicle ranking to the selected posts. There were a lot of great posts but choosing “winners” based on efficiency of making the point instead of content or grammar or even the subject removed any singular victor.

Please congratulate the top group - the Tesla Roadsters that made their points clearly and concisely.

John Lockwood presents Are Short
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